Mike Cara

Self-Employed Mortgage in Peterborough, ON: How to Qualify When You Work for Yourself

Self-Employed and Need a Mortgage in Peterborough?

You've built a successful business.

You pay your bills. You may have strong credit, a good down payment and a solid financial history.

Then you apply for a mortgage and hear:

“Your income doesn't qualify.”

For entrepreneurs, contractors, professionals and small-business owners, getting a self-employed mortgage in Peterborough, ON can sometimes feel unnecessarily complicated.

The problem isn't necessarily that you don't earn enough money.

The challenge is often:

How is your income documented, and how much of that income is the mortgage lender prepared to use for qualification?

That's where lender selection and proper mortgage planning can make a significant difference.

Mike Cara, Your Local Trusted Mortgage Broker in Peterborough, brings over 30 years of experience in banking and finance, together with business, accounting, mortgage and credit knowledge, to helping self-employed borrowers understand their mortgage options.

For self-employed borrowers, the application should begin with the complete financial picture—not simply the taxable-income number on one line of a tax return.

Why Can Getting a Mortgage Be More Complicated When You're Self-Employed?

Mortgage income verification is often straightforward for a salaried employee.

An employer may provide:

• Employment letter
• Pay statements
• T4 income
• Other supporting documentation

Self-employed borrowers can have much more complicated income structures.

You may operate as a:

• Sole proprietor
• Incorporated business owner
• Partner
• Independent contractor
• Commissioned professional
• Consultant
• Tradesperson
• Freelancer
• Small-business owner

Your business may generate significant revenue while your personal taxable income looks considerably lower.

Why?

Because businesses have expenses.

A properly operated business may legitimately deduct expenses associated with generating its revenue.

An incorporated business owner may also decide how income is paid personally through salary, dividends or another appropriate structure.

That can create a disconnect between:

The financial strength of the business

and

The personal income that appears on a tax return.

This is one of the most common challenges with a self-employed mortgage application.

Your Taxable Income Doesn't Always Tell the Whole Story

Suppose your business generates strong annual revenue.

After legitimate business expenses, deductions and the way you compensate yourself, your personal taxable income may be substantially lower than the cash flow generated by the business.

From your perspective, the business is successful.

But a mortgage lender must determine what income it can reasonably recognize under its underwriting guidelines.

Different lenders and mortgage programs may approach that calculation differently.

That's why being declined by one bank doesn't automatically mean you cannot qualify for a mortgage.

One lender's income calculation isn't necessarily the only way a self-employed application can be assessed.

The correct lender can matter considerably.

How Can Self-Employed Income Be Verified?

There is no single document that determines whether every self-employed borrower qualifies.

The required documentation depends on:

• Business structure
• Length of time in business
• Type of business
• How you're compensated
• Mortgage type
• Down payment
• Lender
• Mortgage insurer, where applicable
• Overall financial circumstances

Possible documentation may include:

• T1 General income tax returns
• Notices of Assessment
• T2125 Statements of Business or Professional Activities
• Corporate financial statements
• Business financial statements
• Business bank statements
• GST/HST returns
• Articles of incorporation
• Business licences
• Contracts
• Invoices
• Accountant-prepared statements
• Personal credit information
• Business credit information

CMHC's Self-Employed program, for example, recognizes self-employed borrowers operating as sole proprietors, partnerships and incorporated companies.

CMHC currently recommends a minimum of 24 months operating the business or experience in the same line of work, while allowing flexibility in certain cases involving recently self-employed borrowers.

The key point is:

The documentation needs to tell a credible financial story.

Can Business Expenses Be Added Back to Income?

In some circumstances.

Self-employed borrowers often ask why legitimate business deductions that reduce taxable income can't simply be added back for mortgage qualification.

The answer depends on the lender and program.

Under CMHC's current Self-Employed guidelines, income from a sole proprietorship or partnership may, in qualifying circumstances, be:

Grossed up by 15%

or

assessed using an eligible expense add-back approach.

That doesn't mean every business expense gets automatically added back.

It does demonstrate why understanding the borrower's tax return and business structure matters.

Two borrowers with identical taxable income can potentially present very different underlying financial circumstances.

Mike Cara's Business and Accounting Background Matters

Self-employed mortgage applications aren't simply mortgage applications.

They can also involve understanding:

• Business income
• Personal income
• Corporate structure
• Financial statements
• Cash flow
• Expenses
• Tax documentation
• Debt
• Retained earnings
• How the borrower takes income from the business

Mike Cara holds:

• Bachelor of Business Administration
• Master of Science in Accounting

That education complements over 30 years of experience in banking and finance and professional mortgage experience.

For self-employed clients, this can provide an additional perspective when reviewing the numbers behind the mortgage application.

The objective isn't to replace the borrower's accountant or provide tax advice.

It's to understand the financial information well enough to determine how the mortgage application should be positioned and which lenders may be appropriate.

Can You Get a Mortgage With Less Than Two Years Self-Employed?

Potentially.

Two years of business history remains an important benchmark in self-employed lending, but being newly self-employed does not automatically make mortgage financing impossible.

CMHC specifically provides some flexibility for borrowers who have operated their business for less than 24 months or have less than 24 months of experience in the same line of work.

Factors that may help support the application can include:

• Previous experience in the same industry
• Professional qualifications
• Training or education
• Predictable earnings
• Strong cash reserves
• Acquiring an established business
• Responsible credit management
• Previous employment in the same field

Consider two different borrowers.

One has worked as an electrician for 12 years and six months ago incorporated an electrical contracting company.

Another borrower opened a business in an industry where they have no previous employment, education or operating experience.

Both may technically have been self-employed for six months.

But they don't present the same risk profile.

The complete story matters.

How Much Down Payment Does a Self-Employed Homebuyer Need?

Being self-employed does not automatically mean you need a 20% down payment.

Under current CMHC guidelines, qualifying self-employed borrowers purchasing owner-occupied properties may have access to insured mortgage financing with less than 20% down.

For eligible homeowner loans, current minimum equity requirements generally begin at:

• 5% of the first $500,000 of lending value
• 10% of the portion above $500,000

For CMHC-insured homeowner loans, the property purchase price or lending value must currently be below $1.5 million.

Different rules apply depending on the number of units, occupancy, property type and mortgage program.

Minimum down payment and mortgage qualification are also two different things.

A borrower may have the minimum required down payment and still need to satisfy:

• Income requirements
• Credit requirements
• Debt-service requirements
• Property requirements
• Lender underwriting
• Mortgage-insurer requirements

Self-Employed Doesn't Mean Bad Credit

This is an important distinction.

A self-employed mortgage isn't automatically a bad-credit mortgage.

A self-employed borrower may have:

• Excellent credit
• Significant savings
• Substantial investments
• A profitable company
• Very little consumer debt

and still encounter mortgage qualification difficulties because of how income is reported or documented.

Credit and income are separate parts of mortgage underwriting.

Mike Cara is also an Equifax® Certified Credit Professional, providing additional credit knowledge when reviewing applications involving both complex income and credit considerations.

The goal is to understand the complete application, not judge the borrower based on a single number.

The Mortgage Stress Test Still Matters

Self-employed borrowers also need to meet applicable mortgage qualification and debt-service requirements.

Under CMHC's current Self-Employed guidelines, maximum debt-service ratios are:

• Gross Debt Service (GDS): 39%
• Total Debt Service (TDS): 44%

For those insured applications, the qualifying rate is currently the greater of:

The mortgage contract rate plus 2%

or

5.25%.

For uninsured mortgages at federally regulated lenders, OSFI's current Minimum Qualifying Rate is also the greater of the contract rate plus 2% or 5.25%.

This makes accurate income determination particularly important.

Even a modest difference in the income a lender is prepared to recognize can materially affect the mortgage amount for which a borrower qualifies.

Why the First Lender Matters

A self-employed mortgage application should not be treated as:

“Send it everywhere and see who approves it.”

Different lenders may have different policies relating to:

• Self-employed income
• Incorporated borrowers
• Salary versus dividends
• Business tenure
• Income averaging
• Expense add-backs
• Credit
• Property type
• Debt-service calculations
• Documentation

The first step should be understanding the application.

Then identify the lender whose guidelines best match it.

The first lender matters.

A poorly selected lender can create unnecessary documentation, delays and potentially an avoidable decline.

A mortgage strategy should come before the submission.

What If Your Bank Says No?

A decline from your bank doesn't mean the mortgage market has declined you.

It means that particular application didn't satisfy that particular lender's underwriting requirements.

A mortgage broker can explore lending options beyond one institution.

Depending on the circumstances, potential options can include:

• Prime mortgage lenders
• Banks
• Credit unions
• Monoline lenders
• Alternative lenders
• Private lenders where appropriate

The objective isn't to automatically move a self-employed borrower into expensive financing.

It's to determine why conventional financing doesn't work and whether another institutional lending program can provide a better solution.

Private financing should generally be considered only when the circumstances justify its additional cost.

Through Northwood Mortgage Ltd., Mike Cara also has access to Northwood Mortgage Investment Corporation, an in-house private mortgage lending channel that may provide another potential option for qualifying transactions that don't fit conventional or alternative lender guidelines.

When private financing is used, there should normally be a clear strategy for moving back toward longer-term institutional financing.

Alternative Mortgage Programs for Self-Employed Borrowers

Some borrowers simply don't fit traditional income-verification methods.

Alternative lenders may have programs designed to assess self-employed borrowers differently.

Depending on the lender, consideration may be given to factors such as:

• Business history
• Business revenue
• Bank statements
• Stated or reasonable income
• Industry
• Credit
• Equity
• Property
• Overall financial strength

These programs may involve different:

• Interest rates
• Fees
• Down-payment requirements
• Documentation
• Qualification standards

Alternative financing isn't automatically better or worse.

It is simply another category of mortgage lending.

The correct question is whether the additional cost is justified by the borrower's circumstances and objectives.

Buying a Home When You're Self-Employed in Peterborough

Peterborough has a strong community of entrepreneurs, professionals, tradespeople, contractors and independently owned businesses.

For self-employed homebuyers, mortgage planning should ideally begin before making an offer.

An early review can identify issues such as:

• Insufficient documented income
• Outstanding personal taxes
• Outstanding corporate taxes
• High consumer debt
• Credit issues
• Incomplete financial statements
• Limited business history
• Down-payment documentation
• Business funds being used for the down payment
• A lender that doesn't fit the application

Once identified, some of these issues may be addressed before they affect a purchase.

You may need to:

• Gather additional documentation
• Speak with your accountant
• Reduce certain debts
• Restructure available credit
• Increase your down payment
• Wait for another tax year
• Approach a different lender

Planning ahead can make the process considerably smoother.

Thinking About Becoming Self-Employed? Review Your Mortgage First

This is an often-overlooked issue.

If you're currently salaried but are planning to leave employment and become self-employed, consider reviewing your mortgage needs before making the transition.

Moving from established salaried income to a newly created business can change how lenders qualify you.

That could affect plans such as:

• Buying another home
• Refinancing
• Accessing home equity
• Purchasing a rental property
• Increasing an existing mortgage

That doesn't mean you shouldn't become self-employed.

It means mortgage planning should be part of the transition.

Refinancing When You're Self-Employed

Self-employed borrowers can also encounter income-verification issues when refinancing an existing home.

You may have substantial equity but still need to qualify for the new financing.

A refinance could be considered for:

• Debt consolidation
• Home renovations
• Business purposes
• Investment-property purchases
• Major expenses
• Restructuring existing debt

Again, equity alone doesn't determine mortgage approval.

The lender must still assess the complete application.

Where conventional refinancing isn't available, an alternative or private mortgage strategy may sometimes be considered.

Using Business Funds for a Down Payment

Some incorporated business owners have substantial funds within their company but less cash personally.

Using corporate funds toward a home purchase can introduce additional considerations.

The lender may want to understand:

• Source of funds
• Ownership of the corporation
• How money is being transferred
• Whether removing funds affects the business
• Whether the funds represent salary, dividends, shareholder transactions or another arrangement

Borrowers should discuss tax consequences and corporate withdrawals with their accountant or tax advisor.

From a mortgage perspective, the down payment must still satisfy the lender's source-of-funds requirements.

Frequently Asked Questions About Self-Employed Mortgages

Can I Get a Mortgage in Peterborough if I'm Self-Employed?

Yes.

Self-employed Canadians can qualify for mortgages.

The appropriate lender and mortgage program depend on your:

• Income
• Business history
• Documentation
• Credit
• Down payment
• Debts
• Property
• Overall circumstances

Do I Need Two Years of Tax Returns?

Not always.

Two years of business or industry history remains an important benchmark for many lenders, but exceptions and other approaches may be available.

CMHC currently provides flexibility for certain borrowers with less than 24 months of self-employment or experience in the same line of work.

Can I Qualify if My Taxable Income Is Low?

Potentially.

Some mortgage programs allow different methods for evaluating self-employed income.

The answer depends on your business structure, financial statements, tax information, credit, equity and lender guidelines.

Can Business Expenses Be Added Back?

Some eligible expenses may potentially be treated differently under certain mortgage programs.

CMHC, for example, currently permits qualifying sole-proprietor or partnership income to be grossed up by 15% or evaluated using eligible expense add-backs.

This does not mean every expense can automatically be added back.

Do Self-Employed Borrowers Need 20% Down?

No.

Qualifying self-employed borrowers may be eligible for insured mortgage financing with less than 20% down, subject to property, lender and mortgage-insurer requirements.

Can I Get a Mortgage if I Recently Incorporated?

Potentially.

How long you have operated the underlying business or worked in the same occupation may be more important than simply the date the corporation was created.

The complete history should be reviewed.

Should I Apply Directly With My Bank First?

You can.

However, because lenders can evaluate self-employed income differently, it can make sense to develop the mortgage strategy before applying.

Understanding which lender is most likely to accept the income structure can help avoid unnecessary applications and potential declines.

Why Work With Mike Cara for a Self-Employed Mortgage in Peterborough?

Self-employed mortgage applications often require more analysis than a conventional salaried application.

Mike Cara brings together:

• Over 30 years of experience in banking and finance
• Licensed Ontario Mortgage Broker
• Bachelor of Business Administration
• Master of Science in Accounting
• Equifax® Certified Credit Professional
• Certified Canadian Reverse Mortgage Consultant®
• Experience with traditional, alternative and private mortgage lending

As a local Mortgage Broker in Peterborough, Ontario, Mike Cara works to understand the story behind the numbers.

Your business isn't simply a line on your tax return.

How long you've been operating, how the company generates revenue, how you're compensated, the financial strength of the business, your credit, assets, debts and property can all contribute to the mortgage strategy.

The objective isn't simply to submit an application.

It's to put the application in front of the right lender with the right strategy.

Your Business Works. Your Mortgage Should Too.

Being self-employed shouldn't mean abandoning your homeownership plans simply because your finances don't look like those of a salaried employee.

If you're looking for a Self-Employed Mortgage in Peterborough, ON, start by understanding how lenders are likely to evaluate your income, business, credit and overall financial circumstances.

A bank saying no may mean the application needs a different lender.

It may mean different documentation is required.

It may mean the timing isn't right yet.

Or it may mean another mortgage strategy is needed.

The first step is understanding which one.

Mike Cara — Your Local Trusted Mortgage Broker in Peterborough, Ontario

Your Mortgage Advocate

Over 30 years of experience in banking and finance.

Mike Cara

Mortgage Broker

Bachelor of Business Administration

Master of Science in Accounting

Equifax® Certified Credit Professional

Certified Canadian Reverse Mortgage Consultant®

Mortgage approval is subject to lender qualification, income verification, credit, property acceptability, down payment, mortgage-insurer requirements where applicable and other underwriting criteria. Self-employed income calculations and documentation requirements vary by lender and mortgage program. Tax and accounting matters should be reviewed with the appropriate professional advisor.